Stuck in a bad fixed-term mortgage? What can I do?

[Doodlebug89]

Hi everyone,

I bought my first house with my husband in Summer 2015. We went for a 5 year fixed mortgage for various reasons, I was concerned about the upcoming Brexit vote and potential economic uncertainty in the UK, and I was on a probationary period at work (completed last year) and wanted the reassurance of a fixed mortgage payment each month.

However, I now realise this was the wrong decision. Our fixed rate is 3.99. So last year we paid approx £6,500 interest on a £163,800 loan, and only paid off £2,400 from the actual loan! Our mortgage payment is £735 per month which is very affordable.

There is a huge penalty if we leave (it was £10,000 although it's going down so now £4,800).

Is this a really bad rate? Is there anything we can do? We could aim to overpay by say £3-5k a year if we really really cut back, although DH needs convincing that this is a good idea.

It's our first house so we didn't really know what we were doing!

@bendingspoons Thanks! :)

We made this mistake and because we bought a fixer upper and then did loads of work the value went up by 60k which meant it was worth taking the hit and paying 7k to get out of be mortgage. We went from 3.7% to 1.7%. Over the next 3 years we will save 21k. Worth it.

When the rate of our first mortgage come to an end I felt like you do OP. We had a fixed rate which was much higher than the rate at that moment.
We saw a financial advisor/mortgage broker and I expected he would have lots of amazing suggestions up his sleeve. Instead, he said that we did exactly the right thing. Like you, OP, we are risk adverse. The FA said that, yes, we could have gotten a better rate if we had had a shorter fix or a mortgage that wouldn't be fixed. But obviously we were after security, and you couldn't put a value on having peace of mind.
Since then, we have always had 3-5 year fixed rates, and as other posters said, tried to overpay when possible - even only £50 here or there can make a massive difference long term.

I wouldn't worry about it as mortgage rates are set to rise this year anyway - by the end of the year 3.99% it probably a really good rate!

Yes, you can pay off 10% each year. that drops each year of course because it's 10% of a slightly smaller amount. well worth doing

I feel your pain we took out a ten year fix a year before the rates crashed.

I fixed for 3 years at 6% ish at the absolute high of the property market and the high of interest rates in 2008... then GFC happened, rates fell and property priced fell. Thems the breaks.

You fix for certainty of payments.